Foreign investors conduct first short selling transactions in China  

Banks help facilitate margin financing and securities borrowing transactions in China for global investors under the Qualified Foreign Institutional Investors (QFII) scheme.  

A number of banks have successfully facilitated margin financing and short selling (MF&SS) activities by offshore investors through China’s Qualified Foreign Institutional Investors (QFII) scheme, on the day where the first of such transactions occurred.  

The first MF&SS transactions are the latest in a long line of market firsts for China on its journey towards opening up to foreign investors. The move significantly expands the variety of financial instruments available to QFII investors and provide new ways for them to participate in the China A-share market.  

Citi, HSBC and Standard Chartered have all been quick to announce their involvement in such transactions. All three of the custodians were among the first qualified QFII banks back in 2003.   

“MF&SS is an important securities trading mechanism, helping to activate trading and drive market price discovery,” said Stephen Pemberton, global head of product, banks & broker dealers, securities services at HSBC.  

 “Since the inception of MF&SS in the China A-share market, it has evolved to support further scale and growth. The opening of MF&SS business through QFII/RQFII enables offshore investors to diversify their trading strategies, further boosting inbound investment flows to the China securities market.”  

  MF&SS, together with securities lending which was enabled in November, significantly expands the variety of financial instruments available to QFII investors and provide new ways for them to participate in the China A-share market.  

  The new QFII regulations made major amendments to the previous regime, including unifying QFII and RQFII schemes, expanding permissible investment scope, as well as streamlining the application and review procedures, offering a more convenient and flexible framework for foreign investors to participate in China’s capital markets.  

“We have seen a significant new wave of QFII applicants in recent months. Global investors are looking to take advantage of the new financial instruments available to them, expand their network inside China and reduce counter-party and concentration risk,” said Bryan Murphy, global head of intermediaries client coverage at Citi’s Securities Services. “Citi is pleased to be able to partner with its global clients as they do so.”  

It’s been another eventful year for China’s markets with regards to overseas activity, with the pace of change in China accelerated significantly, sparked by the inclusion of China A-Shares and RMB-denominated government bonds in the MSCI emerging index and Bloomberg Barclays Global Aggregate Index respectively, as well as Northbound investment on Connect schemes achieving several new records.   

In April, China officially opened its fund market to allow foreign asset managers to own an onshore fund management company outright for the first time through a wholly foreign owned enterprise (WFOE) license, enabling them to tap into China’s vast retail market without the help of a local partner.   

Since April, some of the world’s largest buy-side firms including Aberdeen Standard Investments, BlackRock, D.E. Shaw, Fidelity, Schroders and Vanguard have obtained WFOE licenses, conscious that China will become an invaluable source of funds. 

As global asset managers venture into somewhat unknown territories, they seek partners they are already familiar with to support their operations. 

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